1. Twinning project, activity 4, Maintenance assessment Tuesday 4 th October 2005, session 1b The establishment and development of ProRail By Jan Swier, ProRail, The Netherlands Tel. +31 30 235 5315. e-mail: jan.swier@prorail.nl © ProRail. All rights reserved File: g:\Js05\Slovenie\0406.Oct.3.organisation ProRail.ppt

2. 2 Presentation contents *Separation of Train Operating Company (TOC) and Rail Infrastructure management: developments and lessons learned *Outsourcing of maintenance: developments and lessons learned

3. 3 Two important separations for ProRail in a short period 1.Separation of TOC and Rail infrastructure (1996); development initiated via EU Directive 2.Separation of management and implementation of maintenance, and.... its outsourcing (1998); development based on ‘own’ initiative.

4. 4 Separation of TOC and Infra in 1996 Train OperationsRail Infrastructure Capacity mngt. Traffic Control mngt. Infrastructure mngt. TOC = Train Operating Company

5. 5 Development of a new Railways Act. Timetable for separation TOC and Infrastructure 1990199520002005199119921993199419982001199620041997199920022003 Concession model introduced ProRail independent New Railways Act introduced Minister’s announcement: “Stock exchange flotation NS after 1998” Wijffels Committee: *Separation of NS into independent business units *Increased space for transport activities *Government funding of Infrastructure via Infra Fund EU Directive 91/440/EEC: *Accounting separation Operation - Infrastructure *Variable infrastructure costs passed on to users *Debt rescheduling, railway companies *Greater independence in business operation Crisis at NS: Strikes in 2001 and dismissal of BoM on 2 Jan 2002 Legal separation NS and Infrastructure Separation of NS into business units and accounting separation NS- Infrastructure 79.8% 84% 86,4 % 86% Development of punctuality

6. 6 Possible intervention (or governance) models Privatisation / Regulation State-owned company Concession system Model selected for management and operation of the railways in the Netherlands

7. 7 Separation of TOC from Infrastructure in the Netherlands went far beyond the requirements of the EU Directive Separation between Operation and Infrastructure complied with EU Directive: *accounting separation between TOC and Infrastructure. However, the government and NS went far further: *a legal separation between TOC and Infrastructure. *a separation at ownership level: commercial and railway infrastructure. Advantage: clear separation of responsibilities. Disadvantage:organisational and contractual separation, fully eradicating the advantages of internal cooperation. Negative influences: *The formal separation between Operation and Railinfrabeheer took a great deal of time (1994 to 2001/2004). *Long period of uncertainty (1994-2002) about the position of NS: option for a concession model, i.e. not for privatisation

8. 8 Effect of the changes on the organisations (1) 1.1992-1995: expectation, anticipation, curiosity,... 2.1994-1996: accounting separation resulted in considerable financial clarity. All commercial infrastructure activities and assets were then however also transferred to NS, so that the Government and Railinfrabeheer had no income whatsoever from the infrastructure 3.1996-2000: uncertain position for Railinfrabeheer within NS and in relation to Government. The position of Railinfrabeheer was broadly determined by ‘others’. Consequence: weak starting position for Railinfrabeheer (no knowledge, no experience, no instruments, no information.... all necessary for the new task). 4.1996-2001: excessive focus by management of NS on profits and return on investments. To the detriment of rolling stock reliability etc. Consequence: fall in punctuality. 5.1996-2001: intended simplification of timetable led to much unrest and uncertainty amongst drivers and conductors. Consequence: fall in punctuality after 1999 and strikes in 2001.

9. 9 Effects of the changes on the organisations (2) 6.1996-2000: considerable commercialisation of contacts between NS and Railinfrabeheer. Relationships changed from informal contacts to formal contracts. Consequence: sub-optimisation and loss of synergy. By actively working on cooperation, things are much better now. 7.2001-2004: Introduction of new Railways Act and concession model creates clear relationships and responsibilities. Developments are tackled with more focus, energy and power. 8.2004: Railinfrabeheer, Traffic Control and Capacity Management merge to form a single organisation: ProRail. This corrected an ‘error’ from the past (excessive separation of organisations) thus again encouraging cooperation and synergy.

10. 10 Separation of TOC and Infrastructure: lessons learned (according to: Maarten Veraart, AEF, Doctoral thesis on “privatisation”) 1.Attractive plans are not the key to success: risk of ‘blueprint thinking’ and underestimating process conditions is considerable. 2.Changes desired from outside need internal support. 3.Mobilisation of the shop floor for the objectives of change: appeal to professional pride and develop a new form of professionalism. 4.Professionalism is not only a protection factor for public interest (‘good public transport’) but also serves as a motor for change. 5.Trains and track cannot survive without one another; avoid sub- optimisation by actively working at cooperation. Particularly when handling disruptions and achieving taking out of service.

11. 11 Background for outsourcing maintenance (= separation of management and implementation of maintenance) Official: –Increased efficiency and innovation through competition. –Stronger infrastructure management; shift from technical to commercial focus. Unofficial: – It was ‘fashionable’ to outsource in the nineteen nineties. –Hiving off and selling maintenance generated funds for NS.

12. 12 Timetable separation of Management from Implementation (outsourcing maintenance) Separation of NS into Business Units and accounting separation between NS and Infrastructure 1990199520002005199119921993199419982001199620041997199920022003 Concession model introducedProRail independent New Railways Act introduced Privatisation of Engineering office Separation of Engineering office Legal separation NS - Infrastructure Separate placement of Maintenance in new organisation “InfraServices” Privatisation of Maintenance into three companies Introduction of OPC maintenance contracts: focus on activities and technical specifications Start of introduction OPC+: Focus on output, accountability for output and incentives, on quality via maintenance management and alliance model Overhead value analysis: redundancy 600 staff Overhead value analysis ProRail

13. 13 Central Regional 1995-1998 Technical Staff Managing Directors (2) Regional Manager (3) Technical specialists Regional manager (7) Regional head Technology (35) 1990-1994 Staff Technical Staff Managing Director (1) Regional Manager (5) Regional manager Technology (20) Section head Technology (80) Technical specialists Outsourcing of maintenance; shift in skills 1999-Today Technical Staff Team of Directors Regional Manager (4) Technical specialists Manager Planning Manager Realisation (4) (4) Contract managers (11+20) (4) Up to 1990 Staff Heads of Technology Head (2) District head Technology Section head Technology Technical Specialists (5) (10) © ProRail. All rights reserved

14. 14 Changes achieved in management method 1994 Orientation 2003 Orientation * Technology* Business performance * Implicit output* Explicit output * Tasks * Processes * Man hours * Costs * Annual budget plan* Multiyear production plan * Budgets* Results: costs and quality * Rules & Instructions * Contracts (specifications) © ProRail. All rights reserved

15. 15 Outsourcing maintenance: Lessons learned (1) (according to: Maarten Veraart, AEF, Doctoral thesis “privatisation”) 1.Commitment by and between stakeholders is essential. Railway maintenance was left to its own fate in the years following the separation of Operation from Infrastructure (1996). This applied for both Railinfrabeheer and the maintenance contractors. The government and NS failed to use their authority to safely direct the process and to correct design errors. 2.Crisis can help to compel stakeholder commitment. The NS crisis (2001, resulting in the dismissal of two NS Directors on 2 January 2002) also had a disciplinary effect in the maintenance market in respect of shareholders. It compelled commitment. 3.Internal support is necessary for change. Sufficient strength for change is vital within the organisation. The development of professionalism is the most important driving force. This calls for programmes of change on and with the shop floor. The likelihood of success of such changes depends heavily on the strength of the informal organisation.

16. 16 Outsourcing maintenance: Lessons learned (2) (according to: Maarten Veraart, AEF, Doctoral thesis “privatisation”) 4.Liberalisation of the maintenance market is difficult. Eight years following privatisation, the maintenance market is still a closed market. Structure and behaviour restrict the possibilities but do not prevent competition. The absence of a carefully considered sector model in the start-up phase was one of the causes of the lack of success, but certainly not the only cause. 5.Privatisation of maintenance was forced. Turning an internal service into a privatised maintenance business calls for adaptation of the companies in various sub-areas: market structure, personnel, organisation and financing. Privatisation meant a leap forwards which the companies were not yet ready for. 6.Because the four conditions for successful change were not fulfilled, the results were disappointing. The external and internal, formal and informal conditions were not simultaneously met. The results after eight years are therefore disappointing but.... matters did not get out of hand like in England. This may be due to the continued existence of ‘railway loyalty’ on the shop floor and amongst managers.

17. 17 Legal contracts Integrated costs ( possibly) far-reaching (Planning and control cycle Profit and loss account Cost coverage - plus Public limited company 100%government Phases of development towards (greater) independence and professionalism Contract relation- ship with client Basis for pricing Internal mandate Basis for control Principles of valuation Return standard Legal form Ownership structure Management contracts Costs Possible Framework and analysis Costs-benefits system N/A Cost coverage (=zero) Legal contracts Market prices ( possibly) far-reaching (Planning and control cycle Profit and loss account Sector standard Public limited cokmpany Government<50% Service comp. Internal independent External independent Privatisation (according to: Maarten Veraart, AEF, Doctoral thesis “privatisation”) Directives Available budget Limited possibilities Budget control Cash system N/A ProRail 2005 Former Railtrack Denmark, Sweden, ….. SZ

18. 18 Roles in the institutional triangle in the Netherlands (2005) en Government *Legislator, Shareholder, Financier *Supervisor, Concession granter *Policy targets and Scope *Guarantee Public Interest Train operators *Customers *Trains RIB VL ProRail *Quality *Functionality *Capacity *Available and safe train routes

19. 19 Government Train Operators Transport concession (Passengers only ) Performance contract Forwarder Passengers Forwarders Payment Repayment scheme RIB VL ProRail Management concession Management plan Financial model Track Access Charge Performance: KPIs Business relationships in the Netherlands within a concession model (2005) Contractors Engineers Process contracts Project specifications Network statement Access agreement Track Access Charge Performance regime

20. 20 Summary 1.The far-reaching separation between TOC (=NS) and Infrastructure is viewed as positive. A possible risk is and remains sub-optimisation. 2.The transparent and commercial relationships between Government, TOC and Infastructure are viewed as positive. It was therefore essential that a clear choice be made for elaborating a governance model. 3.Railinfrabeheer started with much ground to make up in terms of position and development, because insufficient attention was paid to this aspect for too long. 4.Outsourcing maintenance is not essential according to EU Directives and does not automatically result in lower costs and higher quality. In the Netherlands, the outsourcing of maintenance was a forced occurrence, based on an incorrect situation assessment. This placed ProRail at a considerable disadvantage in terms of administrative powers and initiative. Fortunately, a great deal has now changed in a positive sense. 5.The separation between TOC and Infrastructure and the outsourcing of maintenance have brought about considerable development for new management techniques, far better specification-measurement- planning, and (increasingly) greater understanding of the relationship between costs, quality, time and parameters. These are the preconditions for ensuring that a concession model functions correctly.

21. 21 Thank you for your attention Any questions?